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Starbucks Earnings Preview: Has It Turned the Corner?

Starbucks (NASDAQ: SBUX), which Jim Cramer on Tuesday recommended buying on weakness, is scheduled to report its fiscal fourth-quarter 2012 results Thursday, November 1, after the closing bell. Among other things, investors will be looking to see whether Starbucks "had turned the corner" with its European restructuring, as CEO Howard Schultz told CNBC recently.

Expectations

Analysts on average predict that Starbucks will report that revenue for the quarter rose more than 11 percent year-over-year to $3.39 billion. Per-share earnings are expected to come to $0.45, up from $0.37 per share in same quarter of last year. That consensus EPS estimate has remained steady over the past 60 days. But Starbucks fell short of EPS estimates in the previous quarter, ending a streak of four quarterly positive surprises.

Despite the third quarter miss, EPS and revenues both had double-digit percentage growth, while domestic same-store sales rose seven percent. The CEO said it was the 11th consecutive quarter of record results. Still shares plunged more than 17 percent in the week following the third-quarter report.

For the full fiscal year, the analysts' consensus forecast calls for $1.78 per share on sales of $13.32 billion. That would be up from $1.52 per share and $11.70 billion in the previous year.

The Company

Starbucks Corporation is the largest coffeehouse operator in the world, with nearly 20,000 stores in 60 countries, including more than 10,000 in the United States. It also distributes various coffee and tea products and premium ice cream, and markets books, music, and films. It is a component of the S&P 500 that is headquartered in Seattle, and its market capitalization is more than $34 billion. The company was founded in 1971, and Schultz has been CEO and chairman since 2008.

During the three months that ended in September, Starbucks opened its second Evolution Fresh store, found a mobile payments partner, debuted its Verismo coffee maker for consumers, set a deal to bring coffee to office workers in Switzerland, announced a strategic partnership that would open coffee shops in Scandinavia and said it and a partner would soon open their first shop in India.

Performance

Starbucks' long-term EPS growth forecast is more than 18 percent, and the return on equity is more than 28 percent. The 25.0 price-to-earnings (P/E) ratio is in line with the industry average. The dividend yield is about 1.5 percent. Short interest is less than two percent of the float. Of 30 analysts surveyed by Thomson/First Call who follow the stock, 21 recommend buying shares. The analysts' mean price target signals more than 23 percent potential upside, though the target price is more than four percent less than the multiyear high reached last spring.

The share price has not recovered from the drop following the third-quarter report, and in fact it has retreated more than 10 percent in the past month. Shares are trading in the same neighborhood as at the beginning of the year. That is below the 50-day and 200-day moving averages. Over the past six months, the stock has outperformed Caribou Coffee, but underperformed Dunkin' Brands, McDonald's and the S&P 500.